US Fed makes emergency rate cut
Move fails to soothe financial markets
WASHINGTON: The US Federal Reserve cut interest rates on Tuesday in a bid to shield the world’s largest economy from the impact of the coronavirus, but the emergency move failed to comfort US financial markets roiled by worries about a deeper, lasting slowdown.
Fed chairman Jerome Powell reiterated his view that the US economy remains strong, but said the spread of the virus had caused a material change in the US central bank’s outlook for growth.
“The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” he said in a news conference shortly after policymakers unanimously decided to cut rates by a half percentage point to a target range of 1-1.25%.
Underscoring how grave the central bank views the fast-evolving situation, it was the first rate cut outside of a regularly scheduled policymaker meeting since 2008 at the height of the financial crisis.
“We’ve come to the view now that it is time to act in support of the economy,” Powell said. “I do know that the US economy is strong and we will get to the other side of this; I fully expect that we will return to solid growth and a solid labour market as well.”
“The outlook is uncertain and the situation fluid,” he said.
US Treasury Secretary Steven Mnuchin applauded the Fed’s decision, saying it would help the US economy.
In a tweet after the Fed move, President Donald Trump kept up what has been constant pressure on the central bank to do even more.
“I think they should do more. I think they hinted that they’re not going to do much more, and that’s unfortunate. He gave a very bad signal, in my opinion,” Trump said of Powell.
All three major US stock market indexes closed nearly 3% lower, while the yield on the 10-year US Treasury note dropped below 1% for the first time ever.
Traders believe the Fed is not done. Futures tied to the Fed’s policy rate were pricing in another rate cut by June.
Fed policymakers will provide their own rate path expectations, along with forecasts for economic growth, at the end of their March 17-18 meeting.
Just over a week ago, most Fed officials said they expected the effects of the virus to be temporary and stuck to their view that after three rate cuts last year, the US economy was well-positioned to weather shocks.
“The questions now become whether, how much, and when the Fed might deliver further monetary policy easing,” Oxford Economics analyst Gregory Daco wrote after Powell’s news conference.
“If Fed officials deem that odds of an impending recession are elevated, they’ll continue to be very aggressive in cutting rates.”
With 90,000 cases worldwide in 77 countries and territories, the coronavirus has upended global supply chains, with companies warning daily of hits to their sales and profits.
“We do recognise that a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain; we get that, we don’t think we have all the answers,” Powell said. “Still it will help support overall economic activity.”